HP plans to focus on two major areas: Bringing efficiencies to customers’ on-premises environments, and arming its partners with HP hardware and software to build out hosted clouds.

Analysts say HP is the latest example of a legacy IT vendor that has had to adjust its cloud ambitions in light of how dominant Infrastructure-as-a-Service players Amazon Web Services and Microsoft have become. The consolation prize is that there’s still plenty of opportunity left in the private, managed and hybrid cloud markets.

Goodbye public cloud

The last few months have been awkward and confusing for HP’s public cloud business.

In April The New York Times reported that HP would cede the public cloud market to AWS and Microsoft Azure, but then a week later HP Cloud Vice President and GM Bill Hilf wrote a blog post in which he claimed that his quote was misinterpreted (“In the past week, a quote of mine in the media was interpreted as HP is exiting the public cloud, which is not the case.”). Hilf emphasized that HP operates “one of the largest OpenStack based public clouds.”

Forrester Research Principal Analyst Dave Bartoletti says that when doubts about HP’s public cloud business direction emerged in the spring, it sent a signal to customers that the company was deprioritizing the public cloud. He says this week’s public admission was good. “It’s important for them to move forward and re-align their strategy,” he says.

HP’s public cloud never had any real traction in the market, says Gartner Vice President and Distinguished Analyst Lydia Leong. When it came out she says it was a “good attempt” to imitate what AWS had several years prior. She says HP’s exit reinforces the point that in order to compete in the IaaS public cloud market, it takes billions of dollars to build hyperscale data centers around the world. Only a few providers have shown a willingness to do that.

Looking privately

Fundamentally, legacy IT vendors have a decision to make, says Forrester’s Bartoletti. Will they support their customers in outsourcing much of their IT to the public cloud? Or will they hang on to their on-premises infrastructure businesses and try to make the most of that?

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HP has chosen the latter. In HP executive Hilf’s blog post this week, he wrote that the company will double down on private and managed cloud offerings.

The main product in this category is HP’s Helion CloudSystem, which is based on a distribution of OpenStack and is used to build private clouds. HP also offers managed and virtual private clouds, which allow customers to rent hardware that sits on their own premises and is managed by HP, or use hardware in an HP facility, similar to a traditional managed service approach. It will also offer a Cloud Foundry-based application development Platform-as-a-Service. Those are all very different from an instant-on, elastically scaling IaaS public cloud.

HP will still make outsourcing options available though. It will work with its network of partners, which will offer hosted HP hardware and software, providing customers a public cloud-like service. Cisco is taking a similar strategy with its Intercloud service.

For HP customers that do still want to use IaaS, HP provides tools for connecting into AWS and Azure cloud platforms.

Remember that HP is a hardware company at heart, and the cloud products it is now focusing on will help it sell more gear. Bartoletti says there’s still plenty of opportunity to help customers optimize their data centers via virtualized networks and storage, hyperconverged infrastructure and even containers. Forrester predicts there will be an “active and profitable” enterprise-centered private cloud market.

“These software customers will extend enterprise VM clusters into private clouds, offer better service to internal clients, and refresh and expand their data centers,” Forrester analysts wrote, referring to HP’s prospects. But make no mistake – that market will not see the hypergrowth of the public IaaS cloud market, Bartoletti says.

That explains why other vendors, such as IBM, are still giving the public cloud market a go, along with other cloud offerings.

“IBM has a foothold in the application world,” Leong says. There is strong loyalty to IBM’s WebSphere middleware platform, which becomes a “handle with which to hook developers into IBM IaaS and PaaS,” she says. HP didn’t have that.

Even as all this is happening, AWS and Azure are growing by leaps and bounds in the IaaS public cloud market. AWS boasts that its cloud division has a $7 billion annualized revenue run rate, with cloud-based database services accounting for $1 billion of that, and the business shows no signs of slowing down. At the company’s annual re:Invent conference, AWS introduced Snowball, a system for mass-transfers of data into its cloud. The week before re:Invent, Microsoft announced impressive growth statistics for Azure, too.

Forrester remains optimistic about HP’s prospects, even without its own public cloud offerings. But questions linger. “As HP continues to sell enterprise hardware, software, and services while taking its focus off public cloud, one wonders where it will target net-new revenue streams. A lack of strong public cloud services will constrain HP’s growth opportunities. With a million customers and more than 10 million installed systems, HP will continue to be a big and important vendor for enterprises. However, where will it look to grow business if it’s not going to be with the public cloud services it owns?”

This story, "HP just dropped out of the public cloud – now what? " was originally published by
Network World.

Senior Editor Brandon Butler covers the cloud computing industry for Network World by focusing on the advancements of major players in the industry, tracking end user deployments and keeping tabs on the hottest new startups.